Economic Growth

Economic growth shows how effectively an economy works, and to what volume it is extending its production. Stable economic growth for a long-term period is the major objective for economists of all countries. Economic growth is concerned with a plenty of different things: production of goods and services, exports and imports, investments, social services like education and healthcare, and many many others.

If country’s economy is growing, that means that the amount of these things produces and rendered is increasing.

“Why?” you may ask. For what we need to constantly increase the amount of goods, services, investments and education?

This can be explained by many things.
1) Participation in international trade and finance
First of all, our world is highly competetive, especially in developed countries of European Union, USA, Japan, Hong Kong. And for a country it is almost impossible to exist in isolation from international trade and capital flow. Germany is selling its cars to Russia and Arab Emirates. Russia and Emirates provide many countries with oil and gas. Japan specialises in hi-tech devises and China attracts many international corporations because its labor force is cheap.

Each country should offer the other part of the world some value (machines, food, flowers, technologies, good education, reliable banking service) in order to benefit and provide itself with other things it doesn’t have (for example, oil, airplanes, computers).

Economy must grow in order to be sufficient in international cooperation and trade.
As sales volume increases, it contributes to extention of particular market segments and the position of a particular goods on the market is improving, resulting in improvement of state position in global economy.

2) Growth of population
It is common for developed and developing countries to have positive population growth. That means that the number of people born exceedes the number of people dying. Evidently, the more people live in the country, the more demand for products and services exists.

3) Increase of wants and needs
It is natural for a human to want more than he has. In dark times being deprive of such fundamental things as food, shelter and clothes, people were trying to gain them by growing vegetables and breeding animals, building houses. Nowadays people want their houses to be bigger, their food be more distinguished and tasty.
Besides, we have wants. Wants and needs are different things. A need is something we need to survive, to stay healthy. A want is a desire to have something over these limits, for our well-being, self-realization, pleasure.

According to the theory of Abraham Maslow, the more we satisfy our fundamental needs and wants, the more we aim at satisfying our spiritual ones, like education, self-development, career, respect of others.

The common rule is that the wants of people rise as they are satisfied. As a result, economy encounters the rise of demand. It may refer both to quantity and quality of goods and services produced.

Economic growth itself is quite an abstract category. To make it more real and use it in practice we need to measure it somehow. The worldwide acceptable means of measuring economic growth is the Gross Domestic Product (GDP).

GDP is the amount of goods, services and investment made in a country during some period (for example, a year). The rate at which GDP increases is often refered to economic growth.

If economy grows, GDP increases:
2-3 % - moderate growth
4-6 % - strong growth
> 7 % - heavy growth

If GDP is declining, they say that the economy is in recession.

Economic growth rate of developed countries is lower than that of the developing ones because it is usually quantitively bigger. In other words, $649000 million stands for 5% of USA GDP 2006. To compare, 10% of Iceland GDP is $1140 million.

Two types of GDP are nominal and real GDP. Real GDP in nominal GDP corrected for inflation.

Economic growth is important both in its quantity (GDP) and quality. The latter means that economic growth results from real improvements in the country’s economy, development of technology, life security and working conditions. Growth accompanied by scientific, technical, social and technological developments is called intensive economic growth. It is based on the usage of energy saving technologies, expanses minimization and social evolution.

Extensive economic growth benefits from excessive consumation of natural resources, labor force that leads to emaciation of resources and economic crisis in long-term period.